Public Sector Banks Asked To Assess The Financial Risk Caused By Banks In US and Europe

Finance Minister Nirmala Sitharaman chaired a meeting on Saturday March 25, 2023 to review the performance of Public Sector Banks (PSBs) on various financial health parameters, and the resilience of PSBs in light of the current global financial crisis emanating from the failure of some international banks in the USA and Europe. The government notified about it through a press release.

In the meeting the MDs and CEOs of PSBs openly discussed on the global scenario comprising of the failure of the Silicon Valley Bank (SVB) and the Signature Bank (SB) along with issues leading to the crisis in Credit Suisse. Nirmala was reviewing the exposure of PSBs to this developing and immediate external global financial stress from both the short and the long-term perspectives.

During meeting, the finance minister emphasized on preparedness along with due diligence through adherence to the regulatory framework by focusing on risk management, diversification of deposits and assets base.

She even underlined that state banks must look closely at business models to identify the stress points, including concentration risks and adverse exposures. Further she exhorted that the banks should use this opportunity to frame detailed crisis management and communication strategies.

At the same time, the MD & CEOs of thae banks apprised her that they follow best corporate governance practices, adhere to regulatory norms, ensure prudent liquidity management and continue to focus on having robust asset-liability and risk management.

The MDs and CEOs also informed her that they are vigilant of developments in the global banking sector and are taking all possible steps to safeguard themselves from any potential financial shock. All the major financial parameters indicate stable and resilient PSBs with robust financial health.

According to the press release, "After the detailed deliberations, the Finance Minister advised PSBs to remain vigilant about the interest rate risks and regularly undertake stress tests. Niramala also highlighted that PSBs must leverage the full potential of branches opened in International Financial Services Centres in GIFT City Gujarat to identify international opportunities, including prospects related to Persons of Indian Origin (PIOs)."

Additionally during the course of discussion on the general banking scenario prevailing in the country, the finance Minister has advised PSBs to do the following:

1.Take focused steps to attract the deposits given the steps taken by the Government to reduce the tax arbitrage in some debt instruments;

2. Pivot their strengthened financial position to support credit needs of the growing economy;

3. Focus on credit outreach in States where the credit offtake is lower than the national average, particularly in North-East and Eastern parts of the country;

4. Enhance business presence in new & emerging areas like One District One Product (ODOP), e-NAM, and drones;

5. Aim to increase brick & mortar banking presence in border and coastal areas;

6. PSBs should promote the Mahila Samman Bachat Patra announced in the Budget 2023-24 through special drives and campaigns.